Required: 1. Determine the most profitable production plan if the labour if Sally Limited laobour hours in the coming period is restricted to145 000 hours ?

2. Calculate the savings per labour hour is Sally limited hours in the coming period is restricted to 145 000 hours ?

3. On a purely financial basis, determine how many of each household components made by Sally limited and how many should be bought in from the supplier. If Sally limited expects direct labour in the coming period to be in unlimited supply ?

4. Calculate the savings from making each component W, X, Y, Z if Sally limited expects direct labour in the coming period to be limited to 145 000 hours ?

5. Determine the ranking for the production of each component W, X , Y, Z if Sally labour hours in the coming period is restricted to 145 000 hours ?

Sally Limited manufactures types of household components: W, X, Y and Z. Demand and costs per unit in the coming period are estimated to be as follows: Household Component w X Y z Demand (units) 10 000 50 000 120 000 60 000 Unit variable costs: R per unit R per unit R per unit R per unit Direct labour (R4 per hour) 4 6 8 6 Direct material 2 5 2 11 Variable overhead 2 3 4 3 Total variable cost per unit 8 14 14 20 Absorbed fixed overhead 8 12 16 12 Total Production Cost 16 26 30 32 Fixed overheads are absorbed on the basis of direct labours and represent apportioned general factory overheads. The direct labour used to build the household components is highly skilled and Sally Limited sometimes has difficulties in recruitment, resulting in shortages of labour. Due to rapid technological change, inventories of completed household components are not carried. The finance director of Sally Limited considers the cost of the household components to be too high and is considering subcontracting their manufacture. A supplier has offered to supply any quantity of W, X, Y and Z at R10, R16, R13 and R25 per unit, respectively. Sally Limited seeks to satisfy demand at the lowest cost. Required: Based on the above, should Sally Limited manufacture the household components or buy it from the supplier ? Explain briefly any non financial factors that should be considered before a final decision is taken. Page